The Bitcoin protocol is like a great project. All parts of it are adapted to its function. The most interesting thing is not the technology, but the functions that the technology can achieve. When people see Bitcoin, the only term they know how to understand it is as a new technology. But Bitcoin is more of a new tradition than a new technology.
| Daniel Krawisz. It’s Not About the Technology, It’s About the Money. 2016/7/13.
The Bitcoin world is full of people who know nothing about economics or cryptography. They just know that if they hadn’t sold at the bottom, they could have made millions. These people tell themselves that they are redeemable, that Bitcoin is just MySpace for cryptocurrencies, and that they will have another chance to work early on in other revolutionary projects. These people may be dangerous, but most of them are easily hunted down.
I think this may explain the origin of “blockchain technology”. It makes people talk about the importance of imitations of Bitcoin without mentioning Bitcoin. If someone said “blockchain technology” to me, I would doubt him and ignore him as someone who didn’t know what he was talking about. If I find him smart, then he’s probably a liar. 
When people say “blockchain technology,” you can usually replace it with “mana,” “chakras,” or “quantum,” the same reason. “Blockchain technology” has evolved into a voice that bitcoin people use to squeeze money out of venture capitalists and from each other, similar to the way a male bird lures a female with a song. It’s just a phrase for those who know there’s a lot of money around, but don’t know where the money is coming from.
Aside from the application in Bitcoin, I don’t think some kind of generic “blockchain technology” has many uses. In Bitcoin, blockchain is a solution to the double-spend problem without either party creating a new unit of account or establishing a consistent history. This is an extremely expensive and complex method of maintaining the accounting ledger. Do I really need to do accounting work this way often? What I’m trying to say is that it’s only a good idea if the game is so important that no one can safely act as a referee. I don’t really need much, but I think there’s a good argument to prove that blockchain is a reasonable alternative to the currently oppressed monetary system in the rest of the world. Otherwise, I’d really rather keep my accounting records myself than make them public.
There are no blockchain applications that do not involve the double-spend problem. The blockchain used for applications without the double-spend problem is nothing more than a database, so you can replace it with a distributed hash table. People also use blockchain for time-stamped records. This works because Bitcoin has become a well-known reference point. If you (just) need a timestamp, you certainly wouldn’t have invented blockchain to do that.
However, people are running around the Bitcoin world, screaming “blockchain blockchain” for all sorts of non-intuitive purposes until they are buried under piles of money. I can’t believe how long it will take for people to become wise about this ruse, but I hope it doesn’t last long. Blockchain does not have widespread applications. However, there is an application , i.e. as a currency, which is very important.
Money is an illusion
The basic fallacy about money is to explain in physical terms what is a true sociological phenomenon.  Gold has no value because it is durable, fungible, portable, and scarce; It is valuable because it has a beneficial and self-sustaining tradition in which it has a special place. The physical properties of gold make this tradition possible, but they do not determine whether it will emerge or not; Other commodities of a similar nature may also become traditionally established monetary commodities. Of course, the same is true of Bitcoin. It can’t work without the technology behind it, but it’s important that it’s seen as a valuable fact that allows it to be exchanged for goods and services. People who think “blockchain technology” is important make the same mistake as people who think gold has intrinsic value.
The strange thing for me is that I know I’ve heard a lot of people express the right views about what money is, and then when I seriously consider the meaning of what they’re saying, they look at me like I’m crazy. I’ve heard people say to me, “Money is just a common illusion” or “The value of money is something we all agree on.” Yes! That’s right. That’s exactly what I’m talking about. If money is a common illusion, then you can’t replicate the value of Bitcoin through replication technology. You also have to replicate the illusion, which you can’t do. You will have two blockchains, but only one of them has a common illusion. This makes one of them valuable and the other worthless.
If this seems like a strange proposition, then consider another option: it should mean that it should be possible to create value essentially without working. Every new blockchain is built on the premise that you can create a valuable investment that won’t provide any revenue for the fixed cost of copying Bitcoin.
There’s no magic here. Human behavior has real costs and benefits. Money may simply be a bunch of people giving value to something without much direct use. It doesn’t matter if that sounds ridiculous or not. If there is a behavior that corresponds to this belief that is beneficial to people, then they will continue to act in this way. Others had better understand what they are doing or they will become relatively poor.
Money as an act
The vast majority of the most popular things related to gold are to store it up and leave it for a long time. Therefore, the interpretation of the price of gold should depend primarily on the reason why someone wants something to store conveniently, and the little added value added by the use of gold for jewelry and industrial use. We can study money as a behavior, by abstracting out all uses of money except for storage. No matter how silly it sounds, we all know that it must be good for something because people do it and have been doing it for a while.
When I talk about money as an act, it means that everyone has a number that is socially recognized and associated with them objectively. They can show other people how big they are (the number) and everyone will agree on what that number is. One can do something that subtracts from that number and adds to another person’s number. In addition, people need bigger numbers. This means that they are willing to give up other things to increase their numbers. If we know the costs and benefits of increasing numbers, then we can understand the price of those numbers in the market.
There can be many reasons why people are able to behave this way. These numbers may correspond to the amount of physical goods that people pass to each other, such as gold or shells. They can correspond to numbers managed and guaranteed by institutions, such as dollars or World of Warcraft gold; Or it could be a number stored in the blockchain, such as Bitcoin; Or maybe we’re all just using the honor system, keeping track of our own balances and not cheating.
Usually, economists define money in a way that makes money a unique commodity in the economy. That’s not how I define money. There may be more than one commodity that behaves like money. Instead, I will show that in the long run, I expect the single currency to dominate.
Currencies are often interpreted in the name of inconvenience in barter systems.  While barter transactions may be inconvenient, this alone is not enough to explain the existence of money. It would certainly be nice if we could all identify an item that could be used as money. However, there is no guarantee that everyone will do this well. One can imagine a tribe of people who are very good economists who all understand and like the concept of money, but don’t have enough confidence in each other to make it really work. The first of them will take the risk because he will have to work or sell his property in exchange for something other than storage. His risk will only be rewarded if everyone else is willing to follow suit, and how can others assure him that they will actually do it?
For almost a year, this is the case with Bitcoin. Although Bitcoin people doubt that Bitcoin will one day become a currency, its price is zero. Therefore, it is completely useless as a form of currency. For a long time, Bitcoin people have wanted the price to be above zero, but they have not been able to do so. Bitcoin did not fundamentally change as a software when it first developed its price; The only thing that makes a difference is that people are willing to trade dollars for it.
In general, there is always a personal cost to accepting money, even though the use of money is very common. If I trade my work for money, how do I know that money is still valuable at the end of my job and ready to shop? If I work for something that can be consumed directly, then in any case I can at least get some utility from it. But if I accept something whose primary use is as a medium of exchange, then I will depend on whether someone will be willing to accept this currency in the future.
This is why people can’t just “want” money to exist, and why the inconvenience of the barter system can’t explain the existence of money. There are risks here. To explain why people use money, we need personal gains to match personal costs; Otherwise people will never be happy to use money, no matter how good it is to society.
The utility of money
Using currency is beneficial to the individual, and the benefit is very simple. The person who accepts the currency can postpone his decision about what to buy until later. The person who does not want to use the currency must know better than the person who receives the currency what he will do with the goods he receives. When a person owns money, he does not need to commit to it. If I am the first person to accept the currency in a payment, and I bet it will be cashed, then I can choose what I want later without having to choose based on the limited information I have now. This benefit explains why someone would want something that is easy to store. If he wants to keep his options open, then he can open his vault when the right opportunity arises.
I now offer a trade-off and I think it explains the value of the currency. I have not demonstrated that there are no other costs and benefits of using money, but I do not understand any other costs and benefits. If someone can tell me there are other reasons to hold the currency, please do so. Now I will discuss what this trade-off means for the value of money.
The value of the currency
In this article, by “value” I mean in the sense of investment. Therefore, the value of a currency is what it uses in your portfolio and how much you want. For investors, the value of money depends on the trade-off between commitment and choice. If he wants more options for an extension, then he needs more cash. If he wants more income, then he deserves stocks or bonds.
The reason someone might want to postpone his choice is because the investment is on sale for a limited time. One of the difficulties in doing business is that mistakes are easy to make, and the consequences are usually not immediately apparent until they become inevitable long after. When this happens, businesses need cash to survive long enough to correct themselves. During these periods, it is possible to buy good businesses cheaply for a limited time. That’s why investors want to have a cash balance ready. You never know what’s going to happen, but if you have cash, you’ll be ready for it. Holding shares is a commitment to a particular business, while cash keeps your options open.
The reason buying an investment is a promise is that you can’t always sell an investment easily in exchange for cash. It may sell as written in the above paragraph, and then the investor will not be able to get the same amount of cashback as his investment. In the event of a crash, investors may not be able to deliver on their promises and must sell at a loss. On the other hand, an investor who can make a real commitment won’t care too much about a recession because he’s ready to get through any bad times safely.
What’s interesting about weighing options against commitments is that changes in the overall use of money in an economy may change the nature of this trade-off for an independent individual. The more demand for money, the less risk an individual has to hold it. If you’re the first person to sell goods or labor for money, you might seem crazy or very foolishly bet that other people will want these things in the future. On the other hand, if a lot of people are using money, then you’re just relying on no hyperinflation in the near future. In this case, you may seem crazy or stupid because you are worried about this distant possibility.
In short, the more people use it, the more useful the currency becomes. Considering how many words I used to come to this conclusion, this seems like a very obvious conclusion, but it has some interesting implications that are difficult to be accepted by many people in Bitcoin because these people hold the currency based on the opposite assumption. As more and more people start holding money, the rational response of others is to try to hold more money than they already have. As a result, everyone will try to increase their cash balance at the same time, and they will bid on more other goods in exchange for the cash balance. In other words, all prices tend to fall and the currency becomes more valuable. In fact, everyone ends up getting more money, it’s just that they end up getting more valuable units of money instead of higher amounts; In addition, they end up with a larger percentage of the currency in their portfolio.
This is the opposite of how most investments work. If the price of a stock rises, then its value drops because its dividend yield shrinks in proportion to its price. If the price goes up too much, investors will eventually want to sell at a cheaper price. In contrast, Bitcoin worth $100 today is worth more than $100 a few years ago, even though the price of Bitcoin is much higher. The value is higher because there are more opportunities for owners to decide to dump bitcoin at their own discretion.
The positive feedback between price and value means that the growth or contraction of a currency can be self-sustaining. One might find this conclusion difficult to accept. After all, the value of a business is built through hard work and prudent strategy, and in my opinion, money can somehow drive its own value. I would like to ask anyone to explain the value of Bitcoin in any other way. Saying “bubble” doesn’t count, because that’s actually the same thing. Money is basically a self-sustaining bubble. We don’t yet know if Bitcoin will reach a self-sustaining state, and even if it didn’t, “blockchain technology” would still be wrong, because in that case, there wouldn’t be a good blockchain, not a single one.
What would a self-sustaining bubble look like? Naturally, there must be a limit to the growth of money. As the value of money increases, the personal benefit of holding more money eventually declines. This happens when the market capitalization of a currency becomes more and more important in the economy. There is only so much that the economy has made for mistakes, available to cash holders. Once there are enough investors sitting on piles of money that they can catch all the valuable mistakes, the economy becomes full of money. At that point, even if the value of the currency rises, holding more money is no longer beneficial to the individual. This prevents the value of the currency from rising further until more people or businesses are added to the economy.
This restriction has nothing to do with the underlying technology of money. If people are honest enough, it can run on honor alone. Therefore, the value of money is a macroeconomic phenomenon, even for tiny, eccentric cryptocurrencies like Bitcoin. This is why Bitcoin may be worthless in one year and become valuable in the next year without fundamental changes to the software or protocol, and why it can fluctuate significantly in price in a short period of time, seems difficult to understand. For the value of money is a common illusion, and prices are caused by the vividness of this illusion.
How the value of Bitcoin is created
In the year since Bitcoin’s first release, it had no price and was very worthless. Therefore, the software was not originally developed without creating value. This was caused by later gradual investments. Since its first rise, Bitcoin has experienced a period of rapid price increases. There may be events that are triggered without obvious reasons and the price of Bitcoin can rise or fall rapidly. The slight increase in prices was interpreted as an increase in demand. The increase in demand means that Bitcoin becomes more useful and therefore more valuable. As a result, more people buy and cause prices to rise again. These fanaticisms have left the outside world wondering if Bitcoin really exists. They make people who previously thought Bitcoin was stupid think they should buy a little, just in case it really had something. In other words, they began to think that Bitcoin only works for what the currency really applies to, holding some just in case.
Above I wrote about the hypothesis of a tribe of economists who all wanted to develop a monetary economy and couldn’t, because everyone felt that investing was too risky. Here’s how they solved the problem. They can go around in a circle and take turns investing a little bit. Then none of them have to take a big risk. Their economy won’t be monetized after a round, but they can see who among them is willing to take small risks. If they all show a willingness to invest a little, then many of them will be willing to risk a second round of funding. If the game goes well, economists will start thinking about how rich they would be if they managed to get more money than everyone else. Soon, the game is no longer in order, as they all try to sell as much as possible in order to buy new coins when they are cheap.
Bitcoin does not originate from barter trading systems. The dollar and other state-managed currencies already included almost all trade. However, the initial investors’ calculations of Bitcoin were very similar to those faced by members of the Economist Tribe. Many people are well aware that Bitcoin will be cool if you really can buy things with it. But you can’t buy anything with it, and its investment prospects depend on the assumption that one day it will be somehow asked to trade for goods. How can the risk of such a possibility be estimated? The fact that other currencies already exist does not change the problem. From a Bitcoin investor’s perspective, Bitcoin is likely to exist in barter systems that trade in dollars, yuan, euros, pounds sterling, and yen, rather than tea, silk, salt, and flint. The only difference is that the national currency is a better competitor than tea or salt, so the risk is greater than what Bitcoin would appear in a true barter trading system.
I’m not going to argue against competing currencies from the point of view of physically preventing people from creating them. I am against competing currencies because I believe that monetary competition is inherently monopolistic and that it is extremely dishonest or foolish to promote a new currency as an investment without considering this reality. So I’m against competing currencies because the guy who creates the new currency would better be able to come up with a case and prove that his idea can replace the current system, otherwise he should be considered a scammer.
The fact that currencies have positive feedback between demand and value means that there is usually no stable equilibrium between two currencies. Any initial imbalance between them widens. If one currency is favored over the other, people will react to it and want a little more. This makes the favored one more loved than before. Any two currencies interact in this way, leaving one to rule over the rest.
Many people are fooled when they first enter Bitcoin because they believe that diversity is important. The problem with diversification is that it’s possible to create an unlimited amount of nonsense for free, and if you diversify, you’ll lose everything. Diversification only makes sense in investments that aren’t. If we are looking at a bunch of stocks that already pay dividends, then diversification will make sense. On the other hand, there may be an unlimited number of scam coins. At the end of 2013 and the beginning of 2014, new production and peddling were made every day. They can be produced at this rate until everyone who thinks diversification is a good idea goes bankrupt. Now that all the dumbest people are bankrupt, the focus has shifted to using “blockchain technology” to exploit ignorant venture capitalists.
There are always some risks associated with accepting monetary payments, even for very mature things, such as dollars. If everyone chooses the same currency, then they have coordinated to minimize this risk. If you expect people to use two currencies, you have to have some reason for the two currencies to offset the risk in different ways. I’ve never seen altcoins or “blockchain technology” enthusiasts come close to solving this problem. Obviously, if two currencies are almost identical, such as Bitcoin and Litecoin, then either currency is larger has an advantage. Recently, the price of Litecoin has been somewhat decoupled from the price of Bitcoin, so maybe people finally understand this. Once Litecoin loses its common illusion, no amount of slogans can bring it back.
But what about the more complex stuff? Let’s assume for a moment that Ethereum does work and is actually something that competes with Bitcoin to some degree. Does its smart contract give it a greater advantage than Bitcoin? I don’t see how Ethereum’s smart contract system will lead to a better chance of selling Ethereum than Bitcoin. No matter how cool smart contracts sound, they make Ethereum another application coin, and like other application coins, people will reduce the risk of holding them by not holding them or holding them for as little as possible. This will drive down prices until they are useless in the trade.
By the way, I prefer to be called a “Bitcoin minimathist” rather than a “Bitcoin maximalist” because other blockchains seem useless and easily obsolete.
Bitcoin with US dollars
Bitcoin, on the other hand, is an improvement over the dollar (and other fiat currencies) where it really matters. The dollar is less suitable for storage “just in case”. In the long run, it will depreciate due to inflation. You can’t carry cash with you or the police will take it, and if you leave it at the bank, if you use it for purposes that are deemed unacceptable, your account may be frozen and the money will be withdrawn. You can’t have a dollar like you have Bitcoin. This is not to say that Bitcoin is risk-free. Conversely, if you protect them correctly, you can always expect to get the same proportion of the total amount later.
The national currency is affected by forces beyond your knowledge or control. They are governed by committees that serve the governments that issue them. The jargon used by the members of these committees is not only incomprehensible to most people, but also unbearable dullness for those who understand it. Everyone is influenced by them, but most people don’t bother to learn to understand them. They manage money for the national good, which is not always the same thing as your interests. They can change the rules about how you use the currency, or increase the government’s supply.  It is often impossible to predict what they will do, at least for a long time.
This is not possible under Bitcoin’s current rules, and it is difficult to change them in a similar way that may eventually be achieved. Although many new bitcoins will be created in the future, the issuance schedule is public and therefore has already been priced by the current bitcoins. Therefore, Bitcoin will not depreciate due to inflation. It can lose value by losing popularity, and the risk is greater than the dollar’s (for now).
So, from an investment perspective, there is a real quality difference between Bitcoin and the US dollar. This does not mean that Bitcoin will necessarily beat the dollar. This simply means that Bitcoin has a relative competitive advantage. Bitcoin still has obvious disadvantages; Confirmation is slow and difficult to remain anonymous. So far, however, Bitcoin has performed well against the dollar, and real-world commerce has become increasingly dependent on it. In addition, every time Bitcoin grows, its risk decreases relative to the US dollar.
Therefore, the reason why the monetary aspect of Bitcoin is particularly interesting is that Bitcoin may become the preferred commodity to be stored. If so, then its value will grow until it becomes an important part of the world economy. This will be a major change for the world and for early adopters of Bitcoin. You could say I’m crazy, but I think the possibility is more predictive than the possibility of blockchain applications outside of Bitcoin, and it’s also more likely.
The Bitcoin protocol is like a great project. All parts of it are adapted to its function. The most interesting thing is not the technology, but the functions that the technology can achieve. Blockchain as a concept has no reason to escape the esoteric circle of developers and engineers. However, when people see Bitcoin, the only term they know how to understand it is as a new technology. But Bitcoin is more of a new tradition than a new technology. It’s as if a small part of the crowd in a crowded stadium has started doing wave motion, and you can bet whether the waves will eventually fill the entire stadium.
If someone says “blockchain technology” to you, you might as well walk away right away.  They just want to market you their new decentralized crowdfunding blockchain technology, Bitwhat’s an Internet App Scam. You know they’re lying because everyone who acts like them is a liar, and people who aren’t cheaters actually do things to set themselves apart from them. People who know what he’s talking about will know that you can’t just string together a bunch of buzzwords to generate a meaningful idea. Unfortunately, if basic critical thinking is generally lacking, and if everyone is investing in the stupidity of others, then no one wants to know (the truth), at least until they find a favorable time to exit the position. This may never happen because although they may think they are reaping the stupidity of others, they are more likely to be harvested.
1. On the other hand, just because someone is dumb doesn’t mean he’s not a liar. Based on my experience with Bitcoin, I think many crooks instinctively keep as stupid as possible about how they make money so that they can continue to believe that they are great entrepreneurs.
2. “Do one thing, do it well” http://www.catb.org/esr/writings/taoup/html/ch01s06.html
3. The theory I present in this article is the Austrian theory of money. To learn more about this idea, consult any standard Austrian writing, such as Mulary Rothbard’s Man, Economics and State or Mises’s Human Behavior.
4. When Austrian economists say barter systems, they mean an economy where no commodity is used as money, although the term has a more specific meaning for many.
5. In the United States, it’s really Congress and the executive branch that changes the rules and the Fed that changes supply. For the purposes of this article, this distinction is not important, but some argue that it is important because the Fed is designated as a private institution and Congress is made up of elected representatives.
6. This includes Hillary Clinton.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/bitcoin-nothing-matters-concerning-money/
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